Business Law 12th Edition by Roger LeRoy Miller ,Frank Cross

Exercise 14

Robert Durbin, a student, borrowed funds from a bank for his education and signed a promissory note for their repayment. The bank lent the funds under a federal program designed to assist students at postsecondary institutions. Under this program, repayment ordinarily begins nine to twelve months after the student borrower fails to carry at least one-half of the normal full-time course load at his or her school. The federal government guarantees that the note will be fully repaid. If the student defaults on the repayment, the lender presents the current balance-principal, interest, and costs-to the government. When the government pays the balance, it becomes the lender, and the borrower owes the government directly. After Durbin defaulted on his note, the government paid the lender the balance due and took possession of the note. Durbin then refused to pay the government, claiming that the government was not the holder of the note. The government filed a suit in a federal district court against Durbin to collect the amount due. Using the information presented in the chapter, answer the following questions.
Suppose that in court, Durbin argues that because the school closed down before he could finish his education, there was a failure of consideration: he did not get something of value in exchange for his promise to pay. Assuming that the government is a holder of the promissory note, would this argument likely be successful against it? Why or why not?
DEBATE THIS: An amendment to the 2010 health-care reform bill eliminated privately provided student loans guaranteed by the federal government. Now all student loans come directly from the government. Students will benefit.